The credit rating of LLC CBED «THE BANK OF KAZAN» (hereinafter, the Bank) is based on the satisfactory business profile, adequate capital adequacy, weak risk profile, and adequate funding and liquidity assessment.
The Bank is a small credit institution operating primarily in the Republic of Tatarstan (ACRA rating: AAA(RU), outlook Stable, hereinafter, Tatarstan) and focused on lending and servicing SMEs.
Key assessment factors
The satisfactory business profile assessment (bb+) stems from the small market share held by the Bank in the Russian banking sector in general, and in Tatarstan in particular, as well as the concentrated nature of its credit profile. At the same time, the Bank is expanding its presence outside its home region, including Moscow, in order to attract new customers for integrated servicing and improve income diversification. In addition to corporate loans (about 78% of the loan book), issuance of guarantees, including express guarantees, continues to be the Bank’s major business line, which also contributes to its operational diversification. The Bank’s shareholding structure is viewed by ACRA as transparent.
Adequate capital adequacy assessment. The Bank’s regulatory capital adequacy ratios are comfortable (the N1.2 ratio was 12.27% as of February 1, 2024), which allows the Bank to withstand an increase in the cost of risk by over 500 bps in ACRA’s stress scenario. At the same time, over the past five years, the Bank’s average capital generation ratio (ACGR) declined gradually in view of dividend payments, and now it equals 25 bps, which puts pressure on the capitalization assessment. The Bank’s operational efficiency metrics include a medium CTI and a rather high marginality of 6%.
The weak risk profile reflects the average level of non-performing and potentially non-performing assets and the moderate concentration on the ten largest groups of borrowers, as well as a continuing growth of investments in non-core assets on the balance sheet.
At the same time, ACRA notes that in 2023, the concentration on high-risk industries, including the construction sector, declined, while the share of unsecured loans decreased in the Bank’s loan portfolio.
The risk profile assessment is constrained by a continuing growth of investments in non-core assets received as compensation and held on the Bank’s balance sheet. However, as part of its strategy, the Bank is actively selling such assets, some of which were sold in 2023, and it will further reduce the share of non-core assets.
Adequate funding and liquidity position. The Bank has maintained a sufficiently high buffer of liquid assets, while its funding base is well balanced by sources (in favor of corporates in 2023), and the Agency views it as relatively stable. As of January 1, 2024, the Bank showed a surplus of short-term liquidity in both the base case and stress scenarios of ACRA, which is facilitated by, among other things, its liquid funds held with the Bank of Russia (about 30% of assets).
The Bank has maintained a low concentration on the largest group / the top ten groups of lenders in the total volume of liabilities.
Key assumptions
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Adhering to the current business model over the next 12 to 18 months.
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Maintaining N1.2 above 9%.
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Maintaining three-year average CTI below 75%.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12-month horizon.
A positive rating action may be prompted by:
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Significant decrease in the volume of non-core investments coupled with non-deteriorating quality of the loan book;
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Significant and sustained growth in capital generation and profitability metrics.
A negative rating action may be prompted by:
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Common capital adequacy ratio declining below 9% along with a decline in the capital generation capacity below 50 bps;
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Three-year average CTI sustainably exceeding 75%;
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Increase in the share of non-performing assets and significant increase in the loan book concentration on high-risk industries;
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Significant growth of the volume of non-core investments.
Rating components
Standalone creditworthiness assessment (SCA): bb+.
Adjustments: no.
Issue ratings
There are no outstanding issues.
Regulatory disclosure
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of LLC CBED «THE BANK OF KAZAN» was published by ACRA for the first time on May 11, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by LLC CBED «THE BANK OF KAZAN», information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated statements of LLC CBED «THE BANK OF KAZAN» and the statements of LLC CBED «THE BANK OF KAZAN» drawn up in compliance with Bank of Russia Ordinance No. 6406-U dated April 10, 2023. The credit rating is solicited, and LLC CBED «THE BANK OF KAZAN» participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided ancillary services to LLC CBED «THE BANK OF KAZAN». No conflicts of interest were identified in the course of credit rating assignment.
